Purpose Business Case

The Business Case for Purpose – A Research Overview (2021)

Purpose. It’s on everybody’s lips. Most companies have come to the understanding that Purpose is a critical factor for business, especially since researchers have found its effects on business success and growth. While I believe that Purpose is hardly measurable and a purpose statement often only scratches the surface, I do advocate for a “Business Case for Purpose”. Presenting relevant facts and numbers helps to build common ground, to speak a language everybody comprehends. Let’s put it that way: the Business Case for Purpose is a great starting point. Once we see it only brings positive outcomes, we can move on and use it as a key for further transformation. 

This article summarizes the most significant research findings on the Business Case for Purpose from the past three years up until March 2021. The common perspective of all studies, reports and articles on Purpose is mostly based on the specific (social or environmental) cause a company pursues beyond “doing business”. 

To structure the article, I looked at the impact of purpose through the lense of three stakeholders: your (future) consumers, employees and shareholders. For each of them I listed a bunch of key insights together with direct links to the original sources.

You will learn how purpose drives business growth in the following 9 dimensions:

  • Brand Value
  • Brand Trust
  • Consumer Advocacy
  • Talent Acquisition
  • Employee Engagement
  • Employee Retention
  • Innovation & Transformation
  • Shareholder Value
  • Future Investment

We’ll start with the consumers.

 

CONSUMERS

 

The next generation of customers, especially Millennials and Gen Z, expect companies to have an authentic purpose. “Brands that have a cause have more meaning in the eyes of consumers”. [1] How does this growing expectation translate into brand value, trust and advocacy?

 

Brand Value

  • Brands with purpose have grown at more than twice the rates of other, non purpose-driven brands. [2]

Brand Trust

  • When Gen Z consumers are convinced a brand supports a social cause, they are 85% more likely to trust a brand and 84% more likely to purchase its products. [3]
  • But regardless how much consumers trust a brand, more than 80% of Millenials and Gen Z will conduct extensive research prior making purchase decisions. [4]

Consumer Advocacy

  • 64% of consumers choose, switch, avoid or boycott a brand based on its stand on societal issues. Consumers believe brands can be a powerful force for change. [5]
  • 66% of consumers said they consider a company’s Purpose when making purchasing decisions, and 62% said it is an important factor when making a quick or impulse purchase.  [6] 
  • When Gen Z consumers are convinced a brand supports a social cause, they are 82% more likely to recommend the brand to friends and family. [7]
  • A brand’s communication focused on its stand has a greater effect on a consumer’s intent to advocate for the brand than communication focused on product features. 60% say brands should make it easier to see its values and its position on important issues. [8]

 

But don’t forget, there’s always another side to the double edged sword. A strong belief-driven purchase behavior implies that a well-built brand reputation can be destroyed within seconds. Companies that don’t align with consumer beliefs can lead to substantial loss of brand value. 48% of US customers complain about a brand when they are disappointed and 42% walk away in frustration, 21% never come back. [9]

 

EMPLOYEES

 

Just like anticipating the mindset of your future customer, it takes foresight to understand the needs and expectations of your future employee. Currently, Millennials and Gen Z account for 38% of the workforce but within the next decade, the two generations will be the most dominant and account for 58% of the global workforce. [10] 

Here we look at the effect of purpose on talent acquisition, employee engagement and retention. 

Talent Acquisition

  • In the US, 64% of Millennials consider a company’s social and environmental commitments when deciding where to work and 64% won’t take a job if a company doesn’t have strong corporate social responsibility (CSR) values. [11]
  • Gen Z is the first generation to prioritize purpose over money. This means, the typical Gen Z employee needs to see a connection between what they are doing and broader social impact. [12]

Employee Engagement

  • Brands and companies with a clear purpose drive engagement within the organization and outperform those with no clear purpose. [13]
  • “75% of Gen Z believe that work should have a greater meaning than just bringing home the bacon.” [14]
  • 85% of employees worldwide are not engaged or actively disengaged in their job. Gallup’s study “State of the Global Workplace” points out that “moving the world’s workplace mission from paycheck to purpose” is one key measure to unlock the potential of unengaged employees. [15]

Employee Retention

  • A sense of empowerment through making a tangible difference is 2x more important than higher salary for employee retention. [16]

 

Overall, happy employees translate into better returns. Companies that are ranked high on Glassdoor have outperformed their counterparts with lower ratings by 5% per year. [17]

 

INVESTORS

 

We now understand that companies with a clear purpose are more successful in attracting brand advocates as well as retain engaged employees. But purpose also positively influences a company’s financial returns.  

EY found out that 58% of firms that prioritise business purpose are growing at 10%+, compared to 42% of firms without a clearly articulated purpose. [18] And there’s even more to it.

Innovation & Transformation

  • A Harvard Business Review-EY study stated that “companies with a strong sense of purpose are able to transform and innovate better”. 53% of executives in companies with a strong sense of purpose said their organization is successful in innovating and transforming business, compared with 31% of those in the process of articulating a purpose and 19% of those that have not defined a purpose at all. [19]

Shareholder Value

  • After comparing 4 sets of companies’ financial performance over a period of 20 years, the Torrey Project found that ethical and stakeholder-focused companies enjoy a significantly higher level of stock price growth (50% and 100% higher than that of the S&P 500 over the same period respectively). [20]

Future Investment

  • When it comes to future (impact) investing, Larry Fink – the CEO of the world’s largest asset manager BlackRock – has set a new landmark when he announced to avoid investments in companies that “present a high sustainability-related risk”. [21]
  • And indeed, the demand for sustainable investments increases exponentially. Especially millennials align their investment with their personal values. 87% of high net worth millennials considered a company’s environmental, social and corporate governance (ESG) track record an important consideration. [22] 
  • Again, there’s another side to the success of ESG-focused investments: companies that have experienced ESG-related public controversies in the past were accompanied by substantial market capitalization losses ($534 billion for large US companies). Loss avoidance is key for portfolio returns over time. [23]

 

The core message is: your company can do good AND do well. If you are having investors on board or plan to have, show them the data. Leading your company with purpose can boost returns all the while growing an engaged team and building a loyal customer base. 

 

THE PURPOSE OF PURPOSE

 

After looking intensely at numbers, it’s easy to reduce purpose to a new strategy or tool to generate growth. It is tempting to reverse engineer a purpose because the business case is so compelling. But that’s not the purpose of purpose. 

Purpose is not “managed” top-down. Instead, I encourage to see purpose as to be owned by everyone in your company. If Purpose has not been anchored at the core, it will imply a mindset shift across teams. For this, give the process the time and space it needs and take it to the core. Don’t make this a project for the very few on a timeline that renders Purpose the next management project.

As I see it, the goal of business is not to achieve material success (sales turnover, exponential profits, large investments). Rather, the goal of business is an expression of a purpose and material success is the result. 

THIS is the story behind the numbers. It is also the story of many B Corps and impact-driven businesses that took the B Corp framework – the B Impact Assessment – as a practical tool to start asking the right questions. The B Impact Assessment if free of charge and you can assess it here.